Sebi to take proposal for new delisting rules to board soon

The Securities and Exchange Board of India (Sebi) will propose a review of its regulations for delisting stocks at its next board meeting, chairperson Madhabi Puri Buch said.

“There was a popular belief that we would never review the delisting regulations and that we would stay with the reverse book-building process. A consultation paper has already been floated, and Sebi has received a lot of feedback. At the next board meeting, we are taking that proposal to our board,” Buch said while addressing Ficci’s Capital Markets Conference, or CAPAM 2023, in Mumbai on Thursday.

A Sebi sub-group had considered providing some alternatives to the reverse book-building process, including an option to delist shares at a fixed price. Its consultation paper floated in August said: “The fixed price route will give acquirers and shareholders certainty concerning the pricing of the delisting offer. This would help shareholders decide upfront whether to participate in the delisting process or not at the given price.”

Under existing regulations, the exit price is determined when the cumulative shareholding of the promoter, along with the shares tendered by public shareholders, reaches 90% of the total issued shares under a reverse book-building mechanism.

During reverse book-building, shareholders are invited to submit offers at prices above or equal to the floor price. After the offer closing period, the buyback price is determined based on the offers collected. This process helps ensure fair price discovery for the buyback.

However, Sebi discovered that certain constituents used this opportunity to rig prices. Sebi’s primary goal is to curb possible share manipulation in a company that has chosen to delist from stock exchanges.

Separately, Buch pointed out that the pendency of fundraising applications before the regulator is not a bad thing; “the bad thing is the ageing of such applications”. The focus that we have on pendency and ageing is because of the commitment that the regulator has made to the capital markets stakeholders, she added.

She said Sebi’s role will always be to facilitate capital formation in the economy and to highlight the need for efficient regulatory processes. “In the process of capital formation, delays cost the ecosystem... Everybody understands that in markets, time is money and money is time, and any delay on the part of the regulator causes huge inconvenience but actual costs to market participants, particularly the issuers.”

Buch emphasized that capital formation relies on a balance of trust, transparency and development, and that Sebi’s objective is to bring trust in the system. While the regulator is very conscious of the need for ease of doing business, the Sebi chief said: “If there is no trust, there will be no ease of doing business.”

The Sebi chief also pointed to the increasing number of consultation papers floated by the regulator. “Sebi was consulting more because the regulator thought that markets had become more complex, and it needed to consult participants more to ensure that it got it right,” Buch said. She said since 2003, the percentage of consultation papers to the total circulars issued by Sebi has risen from 7% to 33%.

Speaking on the sidelines of the event, the Sebi chief also said the legal proceedings against the Sahara group will continue regardless of the death of founder Subrata Roy. “The passing of one individual does not change anything,” she said.

When asked about the refund of ₹25,000 crore to the investors of Sahara, Buch replied: “Our actions are dependent on the directions of the Supreme Court-appointed committee. The disbursements have been made to the investors who came with the proof of investment.”